Real Estate Consultants Put to the Test

German newspaper headlines regularly mention real estate issues – e.g., “rent control” or “the initial customer pays the fee” – fueling a lively debate among politicians and representatives on the real estate and housing industry. A third factor also plays a role in legal processes: The coalition agreement includes provisions for laying down national conditions and minimum requirements for people entering real estate and property management. In the future, real estate professionals will also need liability insurance. Working on behalf of the German real estate association IVD, experts at the Center for Real Estate Studies (the CRES, a Freiburg-based Steinbeis Transfer Institute belonging to Steinbeis University Berlin) have written an expert report under the directorship of Prof. Dr. Marco Wölfle on the impact of legislation initiatives and ways to implement key measures.

The expert report starts with three fundamentals: the commitments made in the coalition agreement between the CDU/CSU parties and the SPD; efforts being made by professional organizations in the real estate and housing industry; previous experience that German real estate academics have had with education policies. In the coalition agreement, the ruling parties have laid down goals for the real estate industry, including higher levels of construction and consumer protection mechanisms to safeguard service and consultation standards. Uniform national conditions are planned for startups wishing to enter the real estate industry, with certified levels of expertise and minimum requirements similar to other consultative professions.

The Steinbeis report approaches the analysis on the basis of market theory, examining the underlying constellation between key players. In cooperation with the IVD and industry professionals, a detailed analysis is made of the vocational profiles of real estate agents and managers, as these will be affected by the future legislation. The Steinbeis experts have already made one initial conclusion: Real estate professionals are classic intermediaries, fulfilling a challenging role at an industry interface.

Compared to other markets, a number of factors in real estate are quite unique – the longevity of the purchased product, infrequent buying cycles, the heterogeneity of property. A large proportion of German property buyers only buy an apartment or house once in their life, so they have no experience-based point of reference like they would when buying consumer products. As a result, buyers and renters address all the questions they have regarding their desired property to a qualified professional such as a real estate agent of property manager. In addition to what some people refer to as competence assumption, the entire process involves important property assets, similar to assets encountered in financial services which are strongly regulated by the powers that be. Given consumer protection needs and the similarity of such aspects, the measures captured in the coalition agreement are wholly warranted.

How measures should be specifically implemented is not yet covered by the coalition agreement. Based on the activity profile of real estate professions, which was drawn up in the expert report, the reference in the agreement to other consulting professions is not something the Steinbeis experts agree on. To enter self-employment in the real estate industry, the bar should definitely not be set below the normal levels of commercial training. This stance is understandable if one compares the situation in Germany to neighboring countries. European service standards and certification for real estate agents and property value assessors also set much higher standards in terms of qualifications. The insurance obligation in the coalition agreement is a supporting measure. Similar to car insurance, the premiums of liability insurance will depend on how frequently the insured parties make claims. Poor quality will result in higher premiums or even exclusion from insurance. This will have a positive impact on the quality of services in the real estate industry.

The Steinbeis experts also consider continuing professional development important since real estate agents are increasingly regulated. As a result, regular training is needed. For people already working in the real estate industry, interim solutions will be needed on an individual basis, taking previous experience into account. By laying down standards and training programs, people working in other professions – who wish to switch to the real estate industry – can also gain qualifications.